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Section 44AD: Income of Business 8% – Latest Updates


Section 44AD: Income of Business 8% –  Latest Updates. Section 44AD – The Income Tax Act, 1961. Find Complete for Section 44AD. In this article you can find complete details for Section 44AD like – Introduction for Section 44AD, What is Section 44AD, What are the criteria for Section 44AD, How to Apply for Section 44AD, What if he declares income lower than 8%? and Examples for Section 44AD, Now you can scroll down below and Check complete details regarding “Section 44AD: Income of Business 8%”

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Section 44AD: Income of Business 8%

In order to prove the above quote correct, The Income Tax Act, 1961 has laid down the rules & provisions of collecting taxes in such a way that there would be no loss for the tax collectors & no extra burden on the tax payers. One such section in this regard is Section 44 AD describing computation of income on estimated basis in the case of taxpayers engaged in certain business.

So now, Let us have a brief look on the provisions of the aforesaid Section:

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What are the criteria?:

  1. The assessee should be an eligible assessee. ( An eligible person is a resident individual or a resident HUF or a resident partnership firm.)
  2. He should not claim any deductions under section 10A, 10AA, 10B, 10BA, 80HH, 80RRB.
  3. His turnover/ gross receipts should not exceed Rs. 1crore in the relevant financial year. (This limit of Rs. 1 Crore has been increased to Rs. 2 Crore in Budget 2016. This revised limit would be applicable from Financial Year 2016-17 onwards.)
  4. He can be engaged in any business except for the following:
    • Profession as refereed in section 44AA(1),
    • Income in the nature of Commission or Brokerage,
    • Agency business,
    • Plying, hiring or leasing goods carriages.

Budget 2016 Update for Section 44AD: The benefit of Section 44AD has now been extended to Professionals as well. Any professional whose gross total receipts during the year are less than 50 Lakhs can make use of this Section and disclose Income equivalent to 50% of the Gross Receipts. 

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How to apply the above section?:

  1. His taxable income would be considered to be at least 8% of his total turnover/ gross receipts.
  2. He can voluntarily declare more income.
  3. He is not required to maintain books of accounts.
  4. The individual/HUF can submit ITR 4S which is quite easy as compared to ITR 4.
  5. He will not get any deductions under section 30 to 38. (Example: he cannot claim deduction in respect of depreciation as it is already deemed to be allowed.)

EXCEPTION: In the case of a partnership firm, deduction under section 40(b) regarding remuneration & interest to partners will be allowed.

What if he declares income lower than 8%?:

If he declares income lesser than 8% of his turnover/ gross receipts, irrespective of his turnover or income, he would be required to:

  1. Maintain books of accounts as per section 44A
  2. Get accounts audited under section 44AB.

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  • If Mr. Taxplanner has a total turnover/ Gross Receipts of Rs. 30 Lakhs & he is an eligible assessee, then he can consider at least 2.4 Lakhs (8% of Turnover/Gross Receipts) to be his Taxable income under section 44AD.
  • If Mr. Chintalal has a total turnover/ Gross Receipts of Rs. 150 Lakhs & he is an eligible assessee, still he cannot compute his income under section 44AD as his turnover/ Gross Receipts exceeds the specified limit of Rs. 1 crore.

Thus, we can see that how beneficial this section is for common businessmen whose turnover/ gross receipts is not very high. A large number of Taxpayers in India are availing the benefit of this section & awareness about this section is a must for every eligible tax payer

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About CA Ridhi Dhoot

The writer is a Chartered Accountant & a Licentiate Company Secretary. You can reach out to her at [email protected]

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